Calif. S&L Eyes Realty Vultures' Aid

California's RedFed Bancorp is hoping vulture real estate investors will give its problem loan portfolio a good picking over.

Officials at the $960 million-asset, Redlands thrift company say a bulk sale of most of its bum multifamily credits will restore it to profitability - albeit at a hefty price.

The owner of Redlands Federal Bank is in the process of selling most if not all of its $16.7 million in nonperforming loans, $40 million in foreclosed real estate, and an undisclosed number of letters of credit backing loans in the troubled Southern California multifamily market.

"We intend to sell a substantial portion of our nonperforming loans as well as others which are performing but nevertheless give us cause for concern," said chief executive Robert G. Wiens. "If our core operations remain near 1994 levels, we should return to profitability."

Carol Snodgress, chief financial officer of RedFed, said the sale will likely take place in the next 30 days, but declined to elaborate on the strategy.

Bankers and analysts say such a strategy, while having obvious benefits, could cost RedFed significantly in the short run.

"Everybody knows that there are buyers for these properties," said an analyst who follows multifamily lenders in California, who wished not to be named. "The trade-off is the price you have to accept. These are all vulture investors, and they have a required return for what they do."

The analyst said the going rate for multifamily properties with troubled loans is about 60% of loan value.

Nonetheless, Mr. Wiens said he feels it's a hit RedFed has to take to start making money again. The company went public early last year, and much of the equity raised in the mutual-to-stock conversion has been sucked up by the high loan-loss provisions and carrying costs of problem multifamily credits.

RedFed, which until three years ago was one of Southern California's most prolific multifamily lenders, lost $26.3 million in 1994. More than $20 million of the loss was taken in the fourth quarter.

About a dozen other California thrifts and banks have used a "bulk sale" strategy to get rid of bad real estate assets, but only about half have survived the resulting hit to their capital.

One big multifamily lender, Whittier-based Quaker City Federal Savings and Loan, reportedly has decided to hold onto its foreclosed properties, many of which were damaged in the January 1994 Northridge earthquake.

"The good news is that when this is all said and done," the analyst said, "investment in multifamily in this region will became economically sound again."

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